Nightmare on Wall Street

The financial turbulence of recent days has
wiped billions off the price of shares all around the world. On Friday August
10th Londonâ€™s stock exchange, the FTSE 100, alone dropped Â£63
billion. What does this mean?

The financial turbulence of recent days has wiped billions
off the price of shares all around the world. On Friday August 10th
London's stock exchange, the FTSE 100, alone dropped Â£63 billion. What does
this mean? Obviously market capitalisation, as it's called, is just a paper
price. The same firms are still employing the same workers and making the same
things. But these firms are suddenly worth Â£63 billion less than twenty-four
hours before. And this should sound alarm bells for their workers - and for the
rest of us.

Certainly, somebody's worried. The European Central Board is
an austere body that seems to spend most of its time telling us we can't afford
things. In a dramatic change of style, the ECB, the Federal Reserve Bank of the
USA and the other central banks of the world threw $323 billion (Â£160 billion
or so) at the financial markets in two days - August 9th and 10th.

The monetary authorities are concerned about a possible
meltdown of the global financial system.

The origins of this stampede are in the US sub-prime loans
scandal. Over the past few years, house prices have gone through a bubble in
many advanced capitalist countries, including the USA. The bubble has been fed
by easy credit terms powering house prices ever upward. In the States dodgy
lenders have been chucking money at poor people who couldn't possibly afford to
keep up repayments. These financial institutions have in their turn extracted
their pound of flesh from those they regard as high-risk (sub-prime) borrowers.
This sounds like a squalid corner of the money-lending world. It is.

The watchword of these lenders is the same as the
speculators before the 1929 Wall Street crash. Pass the risk on to â€˜the greater
fool.' The house price bubble has burst in the States, leaving people to
contemplate the fools' paradise the housing market always was. What about the
sub-prime borrowers? Most have had their houses repossessed. Many of them are
homeless. Forget about them. They're little people. They don't matter.

But this sordid little set-up is linked to, and threatens
the existence of, the most respected and conservative banks in the world.
Here's how. Financial operators in the City are sometimes described as
â€˜innovators' in the financial press. As far as we can see, most of them
couldn't even invent the wheelbarrow - unless it was to take their bonuses home
with. Nobel Prize winners in maths have been lured to the City in order to
invent arcane formulae that guarantee to beat the markets! What this
â€˜innovation' usually amounts to is splicing and dicing financial instruments
into ever more fancy pieces of paper. And one component of these bits of paper
that all the geniuses in the City have been buying up is the toxic sub-prime
mortgages.

Capitalism is a system where we all depend on everyone else
for a livelihood, but we don't realise it. The way production is socialised and
held together in the absence of a socialist plan is through the financial
system. So, if large chunks of the banking system disappear into the wide blue
yonder, it could have big repercussions for all of us.

The way capitalism is sold to us is this: most of us just
want to get on with our lives. Fortunately there is a minority of risk-loving
entrepreneurs who make things happen. It's all rubbish.

First we were told there are people in the City with brains
the size of Saturn who understand the intricacies of high finance in ways most
of us are totally incapable of. These guardians of the gate for the big banks
didn't spot a thing and didn't raise the alarm. The present stampede shows
these people are just cattle.

Secondly, capitalists are supposed to take risks. Well, they
all betted on losers - credits that included the worthless sub-prime mortgages.
So do they lose their money? No - the central banks hand it back to them and
say, "Why don't you put it all on the black and see if you win this time?"
Correction: the central bankers take our money and hand it to the
incompetent losers and outright crooks who run the financial system to give
them another punt.

Will the pandemonium spread to engulf the real economy? We
don't know yet. What we do know from this incident is that capitalism offers us
a life of permanent insecurity

Footnote

Stock exchange gyrations were the big story at the end of
last week. There was a smaller story. The National Institute for Clinical
Excellence decided not to allow a drug that slows the onset of Alzheimer's
disease to be prescribed on the National Health Service. NICE says the drug is
expensive. It is. If prescribed, it could hugely improve the quality of life of
people with creeping dementia.

Even more important, it could offer relief to their carers.
Most Alzheimer's sufferers are looked after at home by people who may
themselves be elderly and in poor health. They are not paid, often have to give
up employment opportunities to look after the patient and get very little help
from the state.

Carers are funny people. They don't think about money all
the time. They are driven by a commitment to their loved ones. In the case of
Alzheimer's, the sufferer may not even recognise their carer.

When NICE says we can't afford the Alzheimer's drug, think
about the Â£160 billion the central banks threw at the financial markets in two
days.